U.S. posts record $374 billion deficit

In line with congressional forecasts; 3.5% of GDP

By

CorbettB. Daly

WASHINGTON (CBS.MW) -- The U.S. federal government posted a record annual budget deficit of $374 billion in fiscal year 2003, more than double the $158 billion in the prior year, the Treasury Department announced Monday.

The annual deficit matches an estimate by the Congressional Budget Office earlier this month, but it's smaller than the $455 billion forecast the White House made in its July mid-session review of the budget.

"The improvement in our budget picture since our forecast in July is an encouraging sign that the economic recovery is gaining momentum," said Josh Bolten, director of the White House Office of Management and Budget.

In nominal terms, the deficit is the largest ever, besting the previous record of $290 billion in 1992. As a percentage of the national economy, it's not even close to a record.

The deficit represents 3.5 percent of estimated gross domestic product, the highest since 1993's 3.9 percent but far below the record 30.3 percent established in 1943.

The post-war record for a deficit was set in 1983 at 6 percent of GDP.

Outlays rose 7.2 percent, including a 16 percent increase in military spending to $404 billion. Read the full report.

For September, the final month of the fiscal year, the U.S. recorded a surplus of $26.4 billion, compared with $42.4 billion a year ago. In September, receipts totaled $191.6 billion vs. $192.7 billion a year ago while outlays totaled $165.3 billion vs. $150.3 billion a year ago.

Individual income tax receipts in September were down 2.5 percent from September 2002 to $89.5 billion. Corporate income tax receipts were off 1.5 percent year-over-year to $30.3 billion.

"Today's budget numbers reinforce the indications that we have seen for some months now: that the economy is well on the path to recovery," Treasury Secretary John Snow said in a written statement.

For fiscal year 2004, which began on Oct. 1, the White House now expects a deficit of $535 billion. President Bush has pledged to halve that deficit within five years.

"We can put the deficit on a responsible downward path if we continue pro-growth economic policies and exercise responsible spending restraint. The president's budget does precisely that, halving the deficit from its 2004 peak within five years," Bolten said in a written statement.

Some economists suggested the Bush administration overestimated the deficit in July in order to look better when it began to shrink.

"We suspect that the administration may be highballing its budget numbers -- taking the painful political medicine now and hoping to portray the budget picture as showing improvement once things really begin to heat up on the campaign trail next year," Morgan Stanley economist David Greenlaw wrote in July when the $455 billion deficit prediction was released.

At that time, Morgan Stanley was predicting a $400 billion deficit for 2003. He now sees a $475 billion deficit for 2004, $60 billion smaller than the administration's forecast.

Democrats seized on the deficit figures to charge that Bush has mishandled the economy with two major rounds of tax cuts that caused a projected surplus of $5.6 trillion over 10 years to disappear.

"The administration's tax cuts and budget policies have not created the promised new jobs over the last three years, but they have created huge deficits that will stifle future growth and burden our children and grandchildren with debt," Rep. John Spratt of South Carolina, the top Democrat on the House Budget Committee, said in a written statement released after the Treasury announcement.

Other Democrats were even more harsh in their criticism. "With more than 3 million jobs lost, record budget deficits and mounting debts, it is time for this administration to admit what millions of unemployed Americans already know -- that the economic policies of George W. Bush are the worst in our nation's history," said Democratic presidential candidate Sen. John Kerry, D-Mass.

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